by Carolyn EllisMs. Ellis is Features Editor for Advisor Magazine. Connect with her by e-mail:firstname.lastname@example.org
In 2008 Richard Zeitz brought together his experience from years in banking, investment services, and financial retailing to found Bravias Financial, an independent financial advisory practice serving New Jersey, Pennsylvania, and New York. After several successful years as a generalist, a casual conversation with a friend led him in a very new direction, developing financial strategies for federal employees.
It seems safe to presume that many government employees might mistakenly believe that their benefits packages make them ‘all set’ for retirement. Clearly, this is not the case. We talked with Richard about the issues facing these employees, who are quite often completely in the dark as to how their benefits will provide a workable retirement income stream.
L&HA: I understand you’ve sharpened the focus of your practice in recent years.
RZ: Three years ago I bumped into an old friend who works in the Department of Veterans Affairs. We were having coffee when he asked me questions about his benefits beginning with, “What will happen when I retire?” He wanted me to look at his pay stub, TSP statement, and FEGLI. I had no idea what he was talking about.
He said, “Rich, everyone I know could use a financial advisor that actually understands our benefits. I can introduce you to a million people who all would love to have someone to help them simplify their financial affairs, but you would have to understand our benefits inside and out because you could really mess things up if you don’t.”
L&HA: Here was a turning point?
RZ: After 21 years as a generalist, here it was, my niche. Not only was there an opportunity to help a very under-served market, but my research showed that 75% of the 4 million federal employees in the U.S. have never worked with a financial advisor. They cross their fingers and hope things work out. I saw a real need to get in there and educate them on their benefits.
L&HA: What is the retirement system for federal employees?
RZ: There are two major retirement systems with different benefit features. CSRS [Civil Service Retirement System], established in 1920, is a defined benefit, contributory retirement system that applies to anybody hired before January 1, 1984. FERS [Federal Employees Retirement System] provides retirement, disability and survivor benefits for most civilian workers employed since that date. Many federal employees are covered, including postal employees, law enforcement, firefighters, and air traffic controllers.
L&HA: Did you need specific training to take on this new role?
RZ: I needed to understand the landscape and the terminology because federal benefits are complex. I decided to go for the Chartered Federal Employee Benefit Consultant, the ChFEBC designation. It’s federally recognized and the training and exam are tough. Fewer than ten people in New Jersey and New York had the designation. Training was different from everything I had learned in my previous 19 years: not only the acronyms but how the benefits work in retirement and during working years.
L&HA: Your client work begins with analysis of their benefits?
RZ: We run a federal benefits analysis at no charge to the client that uncovers many talking points. They’ll say, “I want to know exactly what my retirement will look like. What will my pension be? What will my survivor benefits be? What’s the cost to have my survivor get some of my pension if I pass away?” Our software makes projections for different years and scenarios. Many times I give advice to people ages 40-50 who aren’t close to retiring. They just want someone to tell them if they are on the right track.
L&HA: Are annuities often a solution for these retirees?
RZ: FERS employees basically have a three-tiered retirement system comprising their pension, Social Security, and TSP or Thrift Savings Plan, a 401k-style system. With TSP, often our analysis points to better money management solutions and simplifying their financial affairs. Federal employees have five different options they can take with their TSP. Most of them want to have the flexibility of rolling it into an IRA and doing something else with it.
Once they turn 59 1/2 if they’re still working they can do a one-time, in-service withdrawal to an IRA. I find that most federal employees are very conservative by nature, so the conversation often leads to a fixed annuity. Many times it leads to an actively managed portfolio, which as a registered Investment Advisor I also do.
I approach these clients without preconceived ideas. I do an analysis, and then I sit down with them and show them options. They’ll choose what’s best for them based on their risk tolerance, time horizon, and what they want to achieve. They may roll over a $300,000 TSP, and it all goes into managed money. Or they’ll take half and buy a property and we’ll do something else with the other half.
L&HA: How does insurance fit into the conversation?
RZ: The easiest conversation is FEGLI, Federal Employee Group Life Insurance. This is essentially a MetLife group life insurance plan. It’s a five-year renewal term. By age 60 it gets expensive so many federal employees decide to drop it. We give them options for individual life insurance at affordable cost.
L&HA: Is prospecting different with federal employees?
RZ: I find it best to work with groups or departments, like Veterans Affairs or the postal service. I get involved with their associations. I go to their barbecues. It takes time. You need an advocate in the group who understands what you do and wants to help. Once you’ve worked with a supervisor or someone they respect who raves about what you’ve done, others will call to learn more.
L&HA: Education is a hallmark of your practice. How does that part work?
RZ: You need to follow the rules about when and where you can do training. If you break them you can get in trouble. Bravias Financial became a Verified Vendor of the U.S. Federal Registry so we can teach classes and bid on government contracts.
L&HA: What would you most like readers to take away from our conversation?
RZ: First, you’ve got to get educated. You can’t enter the federal space and wing it; you need to understand that if you give them advice without really understanding the ins and outs and they follow that advice, you can easily mess up their retirement. Getting the ChFEBC designation is the first step. You also need the Federal Employee’s Almanac published annually. Even now, when somebody asks me a question and I don’t know the answer, I check the Almanac.
Second, you’ve got to simplify. Some employees, like the air traffic control engineer that I’m currently working with, will want all the details. But for most federal employees, overly complex material can be paralyzing and they wind up not doing anything.
L&HA: What’s the significance of the name Bravias?
RZ: I’ve always been fascinated with Latin- or Greek-sounding names, and when I started the firm I was searching for something distinctive. The root is about being brave. I want to give people courage about growing their finances in line with their objectives. ◊